The Highest-Yielding Big Box Store Play Is Moving In the Right Direction

Most industries tend to consolidate over time. Retail is no exception, as many stores have gone by the wayside. Today, most big box stores compete with online retailers in some capacity, and those that run a niche tend to have the brick-and-mortar business to themselves.

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  • That’s allowed these companies to continue growing, which can benefit shareholders. It’s an even better benefit when they’re also generous with ever-increasing dividend payouts.

    Among the big box retailers, electronics chain Best Buy (BBY) offers the highest dividend yield, at 5.3 percent. That helps takes some of the sting out of shares, which are down 15 percent over the past year.

    While investors are concerned that the pandemic-era burst of electronic buying is over, Best Buy did managed to post better-than-expected profits.

    That could help stem the company’s revenue drop of 10 percent last year, and lead to a higher share price as profitability improves. The market’s pessimism has already taken shares down to about 12 times earnings.

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  • Action to take: Investors may like shares here for the high and growing dividend. The current payout ratio is just over half of earnings, so there’s room for more income growth over time, particularly as the company’s earnings improve.

    For traders, the earnings beat may reverse the current downtrend and lead to a rally in the months ahead. The August $75 calls, last going for about $2.55, offer mid-double-digit gains in the coming months on a summer rally.


    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.

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